Tuesday, June 22, 2021

Morning Note: Appropriately Careful Right Here

Given last week's selloff -- sparked by what, in reality, amounted to utterly benign lip service (though sufficient to trip a few trading algos into sell mode) to those who believe the Fed should essentially do their job and allow interest rates to do their job with regard to rising inflation -- markets are a little on edge this morning awaiting J. Powell's testimony before the Select Subcommittee on the Coronavirus Crisis. 

Yes, I get it, but, no, this Fed has zero intention on upsetting the applecart anytime soon -- or, frankly, ever, for that matter.

Much more on the present setup in tomorrow's main weekly message.

Don't let this morning's numbers fool you, as I suggested above, the equity market's on edge. I.e., while the S&P is flat and the Nasdaq Comp registers a slight gain, as I type 360 of the SP500's 505 constituents are in the red, while losers outnumber gainers nearly 3 to 1 in the Nasdaq. 

Our global database is experiencing technical difficulties this morning, but with regard to foreign equity action, our Asia-Pac and Eurozone ETFs point to weakness on both fronts -- down 0.34% and 0.40% respectively.

U.S. major averages are mixed: Dow down 46 points (0.13%), SP500 up 0.05%, SP500 Equal Weight down 0.10%, Nasdaq 100 up 0.27%, Nasdaq Comp up 0.10%, Russell 2000 down 0.54%.

The VIX (SP500 implied volatility) is down 3.35%. VXN (Nasdaq 100 i.v.) is down 0.96%.

Oil futures are up 0.37%, gold's down 0.25%, silver's down 0.42%, copper futures are up 1.35% and the ag complex is down 0.42%.

The 10-year treasury is down (yield up) and the dollar is up 0.10%.

Led by solar stocks, MP (rare earth miner), base metals futures, Verizon and materials stocks -- but dragged by emerging market equities, ALB (lithium miner), financials, uranium miners and silver -- our core mix is off 0.21% to start the session.

I mentioned in our latest video update that the only thing that bothers me about our bullish commodities thesis is that it's become too consensus. While last week's pullback (that we'd been anticipating [per recent videos]) was no doubt painful to short-term players, I like it, although I think we need to see more to sufficiently rattle the consensus. 

As I pointed out Saturday, we just hedged our gold position for the next few months; here's more on that from our internal log:

"Given that gold is one of our larger exposures, we decided to hedge with puts through September. We’re facing some potentially challenging seasonality and the kind of uncertainty on the policy and economic fronts that could provoke significant selling in what has become a very popular/crowded trade.

Per our bullish long-term thesis on gold, should we see a decent correction, the puts will yield substantial gains that -- barring some other unusual (better) value emerging -- we may very well use to add to the position at lower levels."

Just to give you a feel for how careful (we think appropriately) we are (across the board) right here, note that my reference to gold as "one of our larger exposures" amounts to just ~10% of our core portfolio.

Have a great day!

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